Taxes for Foreign Residents in Mexico: Tax Residency, Worldwide Income and Treaties

Mexico's Federal Tax Code (Código Fiscal de la Federación, Article 9) sets the test for individuals:

1. You are a tax resident if you establish your home (casa habitación) in Mexico.
2. If you also have a home in another country, you are a Mexican tax resident when your center of vital interests is in Mexico. That is the case when more than 50% of your total income in a calendar year comes from Mexican sources, or when the main center of your professional activities is in Mexico.

Your immigration status does not decide this on its own. A temporary or permanent resident card is strong evidence that you live in Mexico, but a person with a card who keeps their home and income elsewhere may argue they are not a Mexican tax resident, and a person with a home in Mexico can be a tax resident without one. Keep records of where you live and where your income comes from.

Mexico also charges value-added tax (IVA) on most purchases, generally at 16%, and states and municipalities charge property tax and other local taxes.

If you work remotely for a foreign employer while living in Mexico as a tax resident, that salary is generally taxable in Mexico. Because the employer does not withhold Mexican tax, you usually have to register and pay it yourself. See remote work rules.

Mexico has income tax treaties with the United States, Canada, the United Kingdom and many other countries. In general terms, a treaty:

• Breaks ties on residency. If both countries treat you as a resident, the treaty's tie-breaker rules look at your permanent home, center of vital interests, habitual abode and nationality.
• Assigns taxing rights for types of income, such as pensions, government pensions, social security, dividends, interest and rent from property.
• Prevents double taxation through credits or exemptions.

The treaty text is the final word, and the rules for pensions and social security differ between treaties. Get advice from a tax professional who knows both countries before your first year as a resident.

• United States. The US taxes its citizens and green card holders on worldwide income wherever they live. You keep filing a US return, may use the foreign earned income exclusion or foreign tax credits, and may need to report Mexican bank accounts (FBAR and FATCA). The US and Mexico signed a social security (totalization) agreement in 2004, but it has not entered into force. See moving to Mexico from the USA.
• Canada. Canada taxes based on residence. Leaving Canada can make you a non-resident, which can trigger a "departure tax" on some assets and non-resident withholding on Canadian pensions and investment income. Canada and Mexico have a social security agreement. See moving to Mexico from Canada.
• United Kingdom. UK tax residence depends on the Statutory Residence Test. Pension and rental income from the UK may still be taxed in the UK, with relief under the UK-Mexico treaty. See moving to Mexico from the United Kingdom.

• Get an RFC (tax ID) and an e.firma if you will have Mexican income or filing duties. See how to get an RFC.
• Choose the right regime. Salaried workers, landlords, freelancers and business owners each file differently. Some residents with self-employed income under a set limit can use the simplified regime (RESICO).
• File the annual return in April for the previous calendar year when you are required to.
• Keep electronic invoices (CFDI). Mexico allows some personal deductions, such as certain medical and education expenses, only with valid CFDI invoices issued to your RFC.
• Report property sales. Capital gains on property are taxed at closing by the notario. Tax residents may qualify for an exemption when selling their own home, subject to limits. See buying property.

Cross-border tax is complex, and mistakes can mean penalties in two countries. Talk to a Mexican accountant (contador) and a tax adviser from your home country if you:

• Work remotely for a foreign employer or have foreign clients.
• Receive pensions, social security or retirement account withdrawals from abroad.
• Own rental property, a business, or investments in more than one country.
• Plan to sell property in Mexico or abroad.

For where you might live and what it costs, see cost of living in Mexico and retiring in Mexico.